According to the death certificate produced by the Government of Rajasthan (a region of India), Gerald Cotten, the CEO of the cryptocurrency exchange QuadrigaCX, died on December 9, 2018. Approximately one month later, QuadrigaCX went offline, and filed for protection from its creditors only a few days after that. QuadrigaCX owes CAD$190 million in crypto assets to its customers, but cannot repay it because Cotten was said to have sole control of the keys connected to the funds. The suspicious circumstances have led some to speculate that Cotten faked his death and has absconded with the funds.

Concerns regarding security of cryptocurrency trading platforms (Platforms) are not new, and a large number of these Platforms operate without regulatory oversight, while regulators have struggled to develop an appropriate framework within which they can operate. This regulatory uncertainty harms investor confidence and hampers developments in the crypto-asset space. In Canada's latest response to such concerns, the Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC, and together with CSA, Regulators), published a consultation paper (Consultation Paper) seeking input from various cryptocurrency stakeholders, including market participants and the fintech community.1 The goal of the Consultation Paper is to solicit feedback on how Canada should regulate crypto-asset trading platforms.

The Regulators have noted that there are no Platforms recognized as exchanges (and therefore regulated as such) in Canada. The consultation with stakeholders aims to benefit the trading public (by way of regulation and improved security over their crypto-assets), and the Platforms themselves, which have indicated such regulation would assist with consumer confidence as the Platforms seek to expand their operations.

The Regulators have posed 22 specific questions to stakeholders in the Consultation Paper, and are soliciting feedback on a variety of topics, including:

  1. Factors in a regulatory framework to determine whether a Platform involves a trade in a security or derivative, such as the Platform's structure, the nature of an investor's digital wallet, how crypto-assets are pooled with other assets, and whether the Platform or a related party controls the investor's assets;
  2. Best practices for Platforms to mitigate risks faced by investors, such as the inadequate safeguarding of crypto-assets, inadequate policies and procedures, investors' risk in the event of a Platform's bankruptcy, inadequate information regarding Platforms' operations or products, and conflicts of interest;
  3. Regulatory approaches taken by other jurisdictions; such as the US and EU;
  4. Standards that a Platform could adopt to mitigate risks associated with safeguarding investors' assets, the use of auditors or third parties in providing assurances to regulators regarding a Platform's internal controls to ensure protected crypto-assets, and challenges associated with delivery of crypto-assets to investors' wallets;
  5. Factors and sources that should be considered in determining a fair price for crypto-assets;
  6. The appropriateness of Platforms monitoring trading activities on their own marketplace, market integrity requirements, best practices and tools for market surveillance, and any associated risks;
  7. The requirements for Platforms to have internal controls, and to conduct an independent systems review;
  8. Disclosure requirements for Platforms regarding trades between the Platform and its participants, and any other conflicts of interest associated with a Platform's business model;
  9. Insurance coverage or similar measures that might be available or required, and challenges associated with those measures;
  10. Other methods of clearing or settling of crypto-assets, and risks associated with a decentralized model of clearing and settlement not present in the traditional model; and
  11. Regulatory requirements, at the CSA and IIROC levels, that should apply to Platforms.

The Regulators have requested feedback by May 15, 2019.


1 See the Joint Canadian Securities Administrators/Investment Industry Regulatory Organization of Canada Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms, March 14, 2019.

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